Charter CEO Expects Time Warner Cable Deal to Close After California Decision in May

Charter CEO Tom Rutledge - H 2014
AP Photo/Richard Drew

Charter CEO Tom Rutledge - H 2014

Tom Rutledge also tells a Morgan Stanley investor conference in San Francisco that there is opportunity for continued pay TV subscriber growth.

Charter Communications CEO Tom Rutledge sees more room for pay TV subscriber growth and expects the regulatory review of the company's planned acquisition of Time Warner Cable to wrap up around May, he told the Morgan Stanley Technology, Media & Telecom Conference in San Francisco on Tuesday.

Charter, in which John Malone's Liberty Media's Liberty Broadband owns a big stake, last year struck a deal to acquire Time Warner Cable after Comcast abandoned its takeover plan amid regulators' opposition. Shareholders of both companies approved the proposed deal in late September. When the two companies announced the deal in late May, they said it was valued at $78.7 billion, including debt. Charter will pay upwards of $55 billion in cash and stock.

With Malone setting up Charter as a consolidator in the cable industry, the company also previously agreed to acquire Bright House, the cable operator run by Advance/Newhouse, for $10.4 billion.

Regulators have been reviewing the deals, and many analysts expect them to approve them with conditions. The FCC could rule in March, based on its informal 180-day-review shot clock, which it has halted several times, according to observers.

"I do think that the FCC is working in their shot clock and working to be consistent with their shot clock," which runs for roughly another three weeks, Rutledge told conference participants Tuesday. "We are working with them to pick some of the benefits of the transaction and turn those into favorable social outcomes." He said the company was "reasonably comfortable" to continue that work with federal and state regulators and come to a deal close soon after California ends its review, which is expected to happen in May after a recent decision to possibly accelerate the process.

An administrative law judge with the California Public Utilities Commission recently granted a Charter request to forgo a planned hearing and set a final decision target date of May 12. Before that, the timetable had called for a June 10 decision.

The enlarged Charter will be the second-largest U.S. cable operator and the largest in Southern California. It will be the third-largest pay TV company in the U.S. behind Comcast and AT&T-DirecTV.

"Fundamentally, we believe in the cable business," Rutledge said in describing the opportunity for the enlarged company. "And we have the opportunity to grow.... Growing customers is the key to our future."

Charter recently reported its first full-year pay TV subscriber gain in more than a decade. TW Cable also posted a video sub gain for 2015 after years of declines. "It's been a long process of losing video customers to satellite [which] had a superior digital infrastructure," but the company has focused on improving service and offering better products after deploying a better two-way digital infrastructure, he said. "The results of that...began to manifest in '15 and we expect that will continue on through '16."

With about 50 percent of pay TV subs being cable users and the other half having satellite TV in Charter and TW Cable markets, "we have an opportunity to grow" even if the whole market doesn't grow by having a "superior" platform, he said.

He added that "we are doing fine at Charter" cable systems and "we think it will continue to accelerate," while the company expects to "be able to get the new assets doing the same thing." With TW Cable infrastructure in particular in good shape, the company expects to be able to put the Charter playbook into action there quickly, Rutledge also said.

Asked about the traditional pay TV bundle, Rutledge said there is a "real issue" focused on affordability. He said he would like to package content to offer people most of what they want at reasonable prices. For content companies, it is the key to push all networks into pay TV carriage deals though, so it is harder for them to adjust to such consumer needs, he said. "I don't think the whole thing is going to come apart" in the near future, he said.

Discussing Charter's plans for its cash, Rutledge said more acquisitions aren't in focus for him for now, quipping that this was partly due to exhaustion from working toward closing the current two deals.